Ninth Circuit Construes Family Movie Act and Affirms Injunction Against Streaming Service

In December 2016, a California federal court issued a preliminary injunction against VidAngel, Inc.’s custom-filtered video streaming service. Thursday, in Hollywood Studios v. VidAngel, Inc., a Ninth Circuit panel affirmed the injunction, agreeing that Disney, Fox, and Warner were likely to prevail on their copyright infringement and technology circumvention claims and that VidAngel’s fair use defense would fail.

VidAngel provided customizable filters that enabled users to skip scenes or silence objectionable content streamed to their devices. The end-user purchased a newly-released DVD or Blu-ray disc from VidAngel, who would hold the physical media on behalf of its purchaser. VidAngel then decrypted the media to bypass security features, save a copy to its servers, and stream it to the purchaser with the selected filters in effect. Finally, VidAngel repurchased the physical media at a price based on the length of time it was used. For example, a DVD could be purchased for $20 and re-sold two days later for $18. Importantly, this pricing model undercut the Studios’ carefully timed and tiered pricing model for new releases and short-term rentals. A significant number of users reported that they would use VidAngel regardless of the filtering features, simply because of price.

The Ninth Circuit agreed that (1) VidAngel violated the Copyright Act by making an unauthorized copy from the physical media, and (2) VidAngel’s decryption violated the Digital Millennium Copyright Act by circumventing the security features. VidAngel defended under the Family Movie Act of 2005 (FMA), which exempts certain home-use censoring from copyright infringement claims. The Ninth Circuit construed the FMA for the first time, holding that it applied only to authorized copies. Because VidAngel filtered an unauthorized copy, and because users could use the service with essentially no filtering at all, the FMA afforded no protection.

VidAngel’s fair use arguments also failed. The commercial nature of VidAngel’s service and its effect on the market for Hollywood new-releases were the primary factors in dispute, and the Ninth Circuit agreed that both weighed against fair use. The court also agreed that the work was non-transformative. Finally, the court rejected VidAngel’s space-shifting argument. Space-shifting generally refers to accessing content on one device remotely through another device. Without deciding whether space-shifting could be fair use in a non-commercial context, the Ninth Circuit found that VidAngel’s commercial space-shifting was not a fair use.

It is unclear whether VidAngel will seek a rehearing en banc or appeal to the U.S. Supreme Court. In the meantime, according to vidangel.com, VidAngel has revamped its service so that it applies filters in conjunction with streaming services such as Netflix and Amazon, presumably relying on their respective licenses. Assuming that those copies streamed from Netflix and Amazon are authorized, VidAngel may have a better case under the FMA if the Hollywood Studios were to come back for a second round.